Brokerage house GEPL Capital is bullish on V-Guard Industries and has recommended buy rating on the stock with a target price of Rs 601 in its May 17, 2013 research report.

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GEPL Capital's research report on V-Guard Industries

" V-Guard Industries reported a top line of Rs 3,787 mn, compared to Rs 2,734 mn in 4QFY12, marking a YoY growth of 39 percent (For the quarter ended March 2013). Revenue growth was the result of growth in two major divisions of the company viz. Electronics (stabilizers, UPS and inverters) and Electrical/Electro Mechanical (cables & wires, water heaters etc), which grew by 38 percent and 39 percent YoY respectively. As expected, the sales in non south market grew by around 75 percent and its core south market sales grew by 30 percent during the quarter.

However, EBITDA margins for the quarter were significantly lower to 5.3 percent (down 680 bps YoY) due to higher advertising spends and inventory write-down due to fall in copper prices. Advertising expenses for the quarter stood at Rs 136 mn as compared to Rs 30 mn in Q4FY12. There was a one-off expense in the quarter of Rs 30 mn on account of shifting the solar water heater factory from Coimbatore to Perundurai. Another hit in EBITDA margin was on account of an increase in the freight costs which could not be passed on to the consumer due to severe price cuts given the sharp correction in copper prices. Interest expense for the quarter were up by 43 percent YoY to Rs 63 mn and after giving effect depreciation and taxes, the company’s PAT stood at Rs 89mn (down 53 percent YoY). On the positive side, the company has informed that it has already undertaken price increases in 1QFY14, as demand has started picking up given onset of summer season.

Outlook & Valuation: As expected, the company’s contribution to revenue has improved from its non south market as compared to its incumbent southern market. In addition to that V-Guard has increased prices at around 5-6 percent in stabilizers and invertors, which will be reflected fully in Q2FY14. All in all we observe this result as completely at par with our estimates and even the development are taking place as per our mentions in the IC report. We maintain our FY14 and FY15 estimates and our buy rating for the company with the target price of Rs 601," says GEPL Capital research report.

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